[Federal Register Volume 60, Number 2 (Wednesday, January 4, 1995)]
[Notices]
[Pages 483-486]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-110]
[[Page 483]]
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 94-87; Exemption Application No. D-
9770, et al.]
Grant of Individual Exemptions; The Lubrizol Corporation
Employees' Stock Purchase and Savings Plan et al.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of individual exemptions.
-----------------------------------------------------------------------
SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) from certain of the prohibited transaction
restrictions of the Employee Retirement Income Security Act of 1974
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, DC. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (were appropriate). The applicants have represented that they
have complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR
47713, October 17, 1978 transferred the authority of the Secretary of
the Treasury to issue exemptions of the type proposed to the Secretary
of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) The are protective of the rights of the participants and
beneficiaries of the plans.
The Lubrizol Corporation Employees' Stock Purchase and Savings Plan
(the Plan)
Located in Wickliffe, Ohio
[Prohibited Transaction Exemption 94-87; Exemption Application No.
D-9770]
Exemption
The restrictions of section 406(a), 406(b)(1) and (b)(2) of the Act
and the sanctions resulting from the application of section 4975 of the
Code, by reason of section 4975(c)(1)(A) through (E) of the Code, shall
not apply to the cash sale by the Plan to the Lubrizol Corporation, the
Plan sponsor and a party in interest with respect to the Plan, of the
Plan's interest (the Interest) in certain securities (the Securities)
issued by Columbia Gas Systems, Inc., provided: (a) no commissions or
other expenses are paid by the Plan in connection with the sale; (b)
the Plan will receive the greater of $227,158.01 or the fair market
value of the Plan's Interest in the Securities at the time of the sale
as determined by Bankers Trust Company (BTC), the Plan's independent
fiduciary; and (c) BTC has determined that the transaction is
appropriate for the plan and in the best interest of the Plan and its
participants and beneficiaries.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on November 1, 1994 at 59 FR
54637.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 219-8881. (This is not a toll-free number).
Wells Fargo Bank, N.A. (Wells Fargo) and Wells Fargo Institutional
Trust Company, N.A. (WFITC)
Located in San Francisco, California
[Prohibited Transaction Exemption 94-88; Application Nos. D-9718 and
D-9719]
Exemption
The restrictions of sections 406(a)(1) (A) through (D) of the Act
and the sanctions resulting from the application of section 4975 of the
Code, by reason of section 4975(c)(1) (A) through (D) of the Code shall
not apply to the lending of securities that are assets of an employee
benefit plan for which Wells Fargo, WFITC or an affiliated company (the
Applicants) are fiduciaries, provided that the following conditions are
met:
(A) The securities are loaned to a broker-dealer which is
registered under the Securities Exchange Act of 1934 (the 1934 Act) or
exempted from registration under section 15(a)(1) of the 1934 Act as a
dealer in exempted Government Securities (as defined in section
3(a)(12) of the 1934 Act) or to a bank (A Borrower);
(B) Neither the Borrower nor an affiliate of the Borrower has
discretionary authority or control with respect to the investment of
the plan assets involved in the transaction, or renders investment
advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to
those assets;
(C) The lending plan receives from the Borrower (either by physical
delivery or by book entry in a securities depository) by the close of
the lending fiduciary's business on the day in which the securities
lent are delivered to the Borrower, collateral (the Collateral)
consisting of cash, securities issued or guaranteed by the United
States Government or its agencies or instrumentalities, or irrevocable
bank letters of credit issued by a person other than the Borrower or an
affiliate thereof, or any combination thereof, having, as of the close
of business on the preceding day, a market value or, in the case of
letters of credit a stated amount, equal to not less than 100% of the
then market value of the securities lent;
(D) Prior to the loan of any securities, the Borrower furnishes the
Applicants with the most recent available audited statements of the
Borrower's financial condition and a representation that, at the time
the loan is negotiated, there has been no material adverse change in
its financial condition since the date of the most recent financial
statements furnished to the plan, that has not been disclosed to the
Applicants. Such representation may be made by the Borrower's agreeing
that each such loan shall constitute a representation by the Borrower
that there has been no such material adverse change;
(E) The loan is made pursuant to a written loan agreement, the
terms of which are at least as favorable to the lending plan as an
arm's length transaction with an unrelated party would be. Such
agreement may be in the form of a master agreement covering a series of
securities lending transactions;
(F) (1) The lending plan (a) receives a reasonable fee that is
related to the value of the borrowed securities and the duration of the
loan, or (b) has the opportunity to derive compensation through the
investment of cash collateral. Where the plan has that
[[Page 484]] opportunity, the plan may pay a loan rebate or similar fee
to the Borrower, if such fee is not greater than the plan would pay in
a comparable transaction with an unrelated party;
(2) The plan receives the equivalent of all distributions made on
or with respect to the loaned securities during the term of the loan;
(G) If the market value of the Collateral at the close of trading
on a business day is less than 100% of the market value of the borrowed
securities at the close of trading on that day, the Borrower shall
deliver, by the close of business on the following business day, an
additional amount of Collateral (as described in paragraph C) the
market value of which, together with the market value of all previously
delivered Collateral, equals at least 100% of the market value of all
the borrowed securities as of such preceding day. Notwithstanding the
foregoing, part of the Collateral may be returned to the Borrower if
the market value of the Collateral exceeds 100% of the market value of
the borrowed securities, as long as the market value of the remaining
Collateral equals at least 100% of the market value of the borrowed
securities;
(H) The loan may be terminated by the lending plan at any time. In
the event of termination, the Borrower shall deliver Replacement
Securities, as defined below, to the lending plan within 5 business
days of notice of termination of the loan. The value of the securities
that the Borrower is obligated to deliver upon termination of a loan of
Agency Securities will be no less than the value of the loaned Agency
Securities at the termination of the loan. For purposes of this
exemption, the term ``Replacement Securities'' means securities that:
(a) are issued and/or guaranteed by the same agency as the loaned
securities, (b) have the same coupon as the loaned securities, (c) have
a principal amount at least equal to but no more than 2% greater than
the then current principal amount of the loaned securities, (d) are of
the same program or class as the loaned securities, and (e) either (i)
have an aggregate weighted average maturity within a 12-month variance
of the then current aggregate weighted average maturity of the loaned
securities, but in no case will the variance be more than 10% of such
aggregate weighted average maturity of the loaned securities, or (ii)
meet some other comparable objective standard containing a range of
variance that is no greater than that described in (i) above and that
assures that the aging of the loaned securities is properly taken into
account.
If the Borrower fails to return the Replacement Securities, the
lending fiduciary may apply the Collateral to purchase other
Replacement Securities, to cover any other obligations of the Borrower
under the agreement, or to pay other expenses associated with the sale
and/or purchase. In addition, the Borrower is obligated to pay the
amount of any remaining obligations and expenses not covered by the
Collateral plus interest at a reasonable rate.
Notwithstanding the foregoing, the Borrower may, in the event the
Borrower fails to return borrowed securities as described above,
replace non-cash collateral with an amount of cash not less than the
then current market value of the collateral, provided such replacement
is approved by the lending fiduciary.
If the Borrower fails to comply with any condition of this
exemption in the course of engaging in a securities lending
transaction, the plan fiduciary who caused the plan to engage in such
transaction shall not be deemed to have caused the plan to engage in a
transaction prohibited by section 406(a)(1) (A) through (D) of the Act
solely by reason of the Borrower's failure to comply with the
conditions of the exemption.
For purposes of this exemption the term ``affiliate'' of another
person shall include: (a) Any person directly or indirectly, through
one or more intermediaries, controlling, controlled by, or under common
control with such other person; (b) Any officer, director, or partner,
employee or relative (as defined in section 3(15) of the Act) of such
other person; and (c) Any corporation or partnership of which such
other person is an officer, director partner. For purposes of this
definition, the term ``control' means the power to exercise a
controlling influence over the management or policies of a person other
than an individual.
EFFECTIVE DATE: This exemption is effective May 27, 1994.
WRITTEN COMMENTS: In the Notice of Proposed Exemption (the Notice), the
Department invited all interested persons to submit written comments on
the proposed exemption within 45 days from the date of publication of
the Notice in the Federal Register. All written comments were to have
been received by the Department by December 16, 1994. The Department
received one written comment. The comment was submitted on behalf of
the Applicants. The issues addressed in the comment and the
Department's responses are summarized as follows:
1. The Applicants request the following modifications be made in
order to make the exemption consistent with the terms and conditions of
PTE 81-6:
(a) Condition (D) of the proposed exemption would require the
Borrower to furnish the Applicants with the most recent available
audited statements of the Borrower's financial condition and a
representation that, at the time the loan is negotiated, there has been
no material adverse change in its financial condition since the date of
those statements. The Applicants request that the following language be
added at the end of condition (D):
Such representation may be made by the Borrower's agreeing that
each such loan shall constitute a representation by the Borrower
that there has been no such material adverse change.
The Department has no objection to the proposed modification, and
accordingly, has amended the language of condition (D).
(b) Condition (G) of the proposed exemption would require the
Collateral received by the lending plan to be equal to at least 102% of
the market value of the loaned securities. The Applicants request that
this condition be modified to require that the Collateral be equal to
100% of the market value of the loaned securities. According to the
Applicants, requiring collateral equal to 102% of the market value of
the loaned securities will discourage the lending of securities,
thereby defeating the purpose of the exemption, which is to permit
lending as a safe and valuable way of increasing the earnings of a
portfolio. The Applicants note that the Department originally set the
minimum level of collateral at 102% when PTE 81-6 was proposed but was
subsequently convinced by commentators that a collateral value of 100%
would provide adequate protection to plans. The Department is persuaded
by the Applicants' comment that a collateral value of 100% will provide
sufficient protection for the participants and beneficiaries of the
Plans. Accordingly, the Department has made the requested modification.
The Department notes, however that nothing contained in the exemption
prohibits a lending plan for negotiating a higher collateral value if
it is appropriate under the circumstances. The Applicants also request
that the following language be added to the end of condition (G):
Notwithstanding the foregoing, part of the Collateral may be
returned to the Borrower if the market value of the Collateral
exceeds 100% of the market value of the borrowed securities, as long
as the market value of the [[Page 485]] remaining collateral equals
at least 100% of the market value of the borrowed securities.
With the respect to the proposed languages concerning the return of
a portion of the collateral under certain circumstances, the Department
has no objection to the proposed additional language, and accordingly,
has inserted this language at the end of condition (G).
(c) Condition (H) of the proposed exemption contains an explanation
of the procedure involved in terminating the loan of securities. The
Applicant requests that the first 3 sentences of condition (H) be
replaced with the following:
The loan may be terminated by the lending plan at any time,
whereupon the Borrower shall deliver Replacement Securities to the
lending plan within 5 business days of notice of termination of the
loan.
Although the Department does not object to the deletion of the
reference to the trustee of the fund, the Department wants to make
clear that the value of the securities that the Borrower is obligated
to deliver upon termination of a loan of Agency Securities must be no
less than the value of the loaned Agency Securities at the termination
of the loan, as represented by the Applicants in correspondence dated
September 26, 1994. The Department believes that this condition is
integral to the proposed exemption and in the best interests of the
participants and beneficiaries of the Plans. Consequently, in response
to the Applicants' comments, the Department has modified the first 2
sentences of condition (H), and replaced the third sentence with the
following:
The value of the securities that the Borrower is obligated to
deliver upon termination of a loan of Agency Securities will be no
less than the value of the loaned Agency Securities at the
termination of the loan.
(d) The Applicants also request that the first sentence of the
second paragraph of condition (H) be replaced with the following
sentence:
If the Borrower fails to return Replacement Securities, the
Collateral may be applied to purchase other Replacement Securities,
to cover any other obligations of the Borrower under the agreement,
or to pay other expenses associated with the sale and/or purchase.
The Department has no objection to the proposed modification, and
accordingly, has made this substitution.
(e) In addition, the Applicants have requested that the following
language be added immediately preceding the last paragraph of condition
(H):
Notwithstanding the foregoing, the Borrower may, in the event
the Borrower fails to return borrowed securities as described above,
replace non-cash collateral with an amount of cash not less than the
then current market value of the collateral, provided such
replacement is approved by the lending fiduciary.
If the Borrower fails to comply with any condition of this
exemption in the course of engaging in a securities lending
transaction, the plan fiduciary who caused the plan to engage in
such transaction shall not be deemed to have caused the plan to
engage in a transaction prohibited by section 406(a)(1) (A) through
(D) of the Act solely by reason of the Borrower's failure to comply
with the conditions of the exemption.
The Department has no objection to the proposed additional language,
and accordingly, has made the requested modification.
2. The Applicants have requested that the phrase ``issued and/or
guaranteed'' replace the term ``issued'' wherever that term is used, in
order to clarify that the Agency Securities may be either issued and/or
guaranteed by an agency. In accordance with the Applicants' request,
the Department has made the appropriate modifications to the exemption.
3. The Applicants wish to clarify that their assertion that over
95% of the Agency Securities traded in the market are effected using a
generic trading method is merely an estimate and is not intended as a
representation of fact.
4. The Applicants also wish to clarify that the Applicants'
obligation to monitor the market value of the loaned securities on a
daily basis extends to business days only.
5. The Department notes that the parenthetical ``plus interest'' in
condition (e) of paragraph number 5 in the proposed exemption was
included in the notice inadvertently.
The changes described above are hereby incorporated into the
exemption as granted. Accordingly, after giving full consideration to
the record, the Department has determined to grant the exemption, as
described herein. In this regard, the Applicants' comments have been
included as part of the public record for the exemption application.
The complete application file is made available for public inspection
in the Public Documents Room of the Pension and Welfare Benefits
Administration, room N-5638, U.S. Department of Labor, 200 Constitution
Avenue N.W., Washington, D.C. 20210.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the Notice published on November 1, 1994 at 59 FR 54635.
for further information contact: Virginia J. Miller of the Department,
telephone (202) 219-8971. (This is not a toll-free number.)
Vaquero Farms, Inc. Profit Sharing Plan and Agri-Bis, Inc. Profit
Sharing Plan (the Plans)
Located in Stockton, California
[Prohibited Transaction Exemption 94-89; Application Nos. D-9711 and
D-9712]
Exemption
The restrictions of sections 406(a), 406 (b)(1) and (b)(2) of the
Act and the sanctions resulting from the application of section 4975 of
the code, by reason of section 4975(c)(1) (A) through (E) of the Code
shall not apply to the past cash sale (the Sale) by the plans of
certain promissory notes (the Notes) to Vaquero Farms, Inc. (the
Applicant) and Agri-Bis, Inc., a related company, provided that the
following conditions were met at the time of the sale: (1) The sales
price of the Notes was not less than their aggregate fair market value
on the date of the Sale; (2) the Sale was a one-time transaction for
cash; (3) the Plans did not pay any fees or commissions in connection
with the Sale; and (4) the Plans' independent fiduciary determined that
the transaction was appropriate for and in the best interests of the
Plans and their participants and beneficiaries.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on September 30, 1994 at 59
FR 50013.
effective date: This exemption is effective as of May 31, 1994, the
date of the Sale.
for further information contact: Virginia J. Miller of the Department,
telephone (202) 219-8971. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions to which the exemption does not
apply and the general fiduciary responsibility provisions of section
404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of the Act; nor does it affect the
requirement of section 401(a) of the Code that the plan must
[[Page 486]] operate for the exclusive benefit of the employees of the
employer maintaining the plan and their beneficiaries;
(2) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(3) The availability of these exemptions is subject to the express
condition that the material facts and representations contained in each
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, DC, this 29th day of December, 1994.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 95-110 Filed 1-3-95; 8:45 am]
BILLING CODE 4510-29-M